Standards Focus: Emerging Economies - Vorsprung Durch Technik.
A worldwide drive to improve the way IT systems and computers in different organisations ‘talk’ to each other is set to add to the pressure for international accounting standards.
More than 70 businesses and accountancy institutes are backing the development of a new business reporting computer language that can be understood by computers around the world. They hope the new language, given the unsnappy name of XBRL, will cut the number of hours wasted by businesses when they type information into their computer systems that comes from the computer system of a different organisation.
The XBRL project aims to end the need for such pointless tasks by developing a common computer language that can be understood by all IT systems.
It is a specialised version of the XML internet language, the current language on which much of the web is based. XML will provide a general business language, while XBRL will concentrate specifically on business reporting and financial statements.
But one side-effect of XBRL, according to those involved, is that it will to add to forces driving the development of harmonised worldwide accounting standards.
Ian Wright, a PricewaterhouseCoopers partner who has been involved in the project from the beginning, believes XBRL will increase the pressure on businesses to provide financial information based on international accounting standards.
He says investment in companies is increasingly taking place across borders, a trend that is being partly fuelled by the internet.
On top of this, there are increasing numbers of individuals taking an interest in the stock markets, and therefore seeking more information about companies.
Wright, who is also chairman of the English ICA’s XBRL taskforce, gives the example of a Korean investor, worried about investing in his own country, looking to invest abroad and using the web to surf for information on which he can base his future investment decisions.
‘If a company gives him more information he is far more likely to invest in it. Providing data in an internet-friendly manner will help him understand it.’
XBRL and XML work by tagging pieces of information using universal plain language terms, giving those without IT expertise more chance of understanding it. XBRL also has another striking feature. It allows the recipient to choose their own presentation format and style of summarisation.
This could make distinctions between the individual accounting rules of different countries even more obscure and difficult to understand.
Users will increasingly demand information based on international standards for ease of comparison, and so they can understand what they are reading.
Experts in the US have already designed much of the new language. They have concentrated initially on XBRL for industrial and commercial companies, and are now looking at other sorts of companies.
Wright says interest in XBRL in the UK is beginning to grow, but it could snowball if something triggers its use.
This, he says, could be a decision by a major bank to ask for information from companies in an XBRL statement, or a decision by a FTSE-100 company to put an XBRL version of their accounts on their website and allow visitors to manipulate it as they wish. If one major player does one of these, he predicts that its rivals will quickly follow.
Web languages explained
– XML is an web-based common IT language allowing disparate systems to exchange information. It separates data from applications so it can be reused – XBRL a subset of XML specialising in business reporting, including financial statements